Question

Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including the portion of the expenditures that are amortized over 180 months) this year in the following alternative scenarios. (Leave no answer blank. Enter zero if applicable.) a. She incurred start-up costs of $3,900. Amount of start-up costs immediately expensed

Answer 1

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8. Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.
A. She incurred Start-Up Costs of $ 3,900.
The amount of Start-Up Costs immediately expensed is $ 3,900.
Explanation :
Particulars	Start-Up Costs Amount	Explanation
Maximum Immediate Expense (1)	$5,000	According to IRS Publication 535
Total Start-Up Costs (2)	$3,900	Provided in problem
Phase Out Threshold (3)	$50,000
Immediate Expense Phase Out (4)	$0	(2) - (3)
Allowable Start Up Costs	$3,900	(2) or {(1) - (4)}, whichever is lessor
B. She incurred Start-Up Costs of $ 44,500.
The amount of Start-Up Costs immediately expensed is $ 5,000.
Explanation :
Particulars	Start-Up Costs Amount	Explanation
Maximum Immediate Expense (1)	$5,000	According to IRS Publication 535
Total Start-Up Costs (2)	$44,500	Provided in problem
Phase Out Threshold (3)	$50,000
Immediate Expense Phase Out (4)	$0	(2) - (3)
Allowable Start Up Costs	$5,000	(2) or {(1) - (4)}, whichever is lessor
C. She incurred Start-Up Costs of $ 53,200.
The amount of Start-Up Costs immediately expensed is $ 1,800.
Explanation :
Particulars	Start-Up Costs Amount	Explanation
Maximum Immediate Expense (1)	$5,000	According to IRS Publication 535
Total Start-Up Costs (2)	$53,200	Provided in problem
Phase Out Threshold (3)	$50,000
Immediate Expense Phase Out (4)	$3,200	(2) - (3)
Allowable Start Up Costs	$1,800	(2) or {(1) - (4)}, whichever is lessor
D. She incurred Start-Up Costs of $ 64,750.
The amount of Start-Up Costs immediately expensed is $ 0.
Explanation :
Particulars	Start-Up Costs Amount	Explanation
Maximum Immediate Expense (1)	$5,000	According to IRS Publication 535
Total Start-Up Costs (2)	$64,750	Provided in problem
Phase Out Threshold (3)	$50,000
Immediate Expense Phase Out (4)	$14,750	(2) - (3)
Allowable Start Up Costs	$0	(2) or {(1) - (4)}, whichever is lessor
E. If she formed a Partnership Firm or Corporation and incurred Organizational Expenditures.
The answers would be the same even if these were organizational expenditures incurred for forming a Partnership Firm or Corporation, instead of start-up costs, since IRS Publication 535 provides for the same treatment. Note, however, that organizational expenditures only apply to corporations and partnerships and do not apply to businesses organized as sole-proprietorships.